O'Connor & Partners
Financial Plan
The initial cash balance is substantial after start-up expenses. According to this business plan, the cash balance bottoms out at about in the seventh month of operation. Cash flow enters positive territory during month eight (August 2004). The net worth of the company is estimated to grow steadly through 2006. At the end of 2006, a dividend may need to be paid out to the equity investors, if they choose to exit the venture.
7.1 Projected Profit and Loss
During the first month of operation, the gross margin is positive but the net profit is negative, as a loss occurs. The first profitable month is July 2004, the seventh month of business. As sales ramp up, the monthly gross margin rises through December 2004. For the first year overall, the gross margin is good and the net profit is meager, according to the financial plan. As consulting sales continue to increase, year two and three imorove profitability. Net profit over the three-year period is moderate. The pro forma profit-and-loss statement for 2004-2006 is show below. See the Appendix for the monthly profit-and-loss table for 2004.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $185,026 | $235,518 | $303,520 |
Direct Cost of Sales | $72,000 | $78,000 | $84,540 |
Other Costs of Sales | $0 | $0 | $0 |
Total Cost of Sales | $72,000 | $78,000 | $84,540 |
Gross Margin | $113,026 | $157,518 | $218,980 |
Gross Margin % | 61.09% | 66.88% | 72.15% |
Expenses | |||
Payroll | $96,000 | $105,600 | $116,160 |
Sales and Marketing and Other Expenses | $0 | $0 | $0 |
Depreciation | $0 | $0 | $0 |
Rent | $0 | $0 | $0 |
Utilities | $0 | $0 | $0 |
Insurance | $0 | $0 | $0 |
Payroll Taxes | $14,400 | $15,840 | $17,424 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $110,400 | $121,440 | $133,584 |
Profit Before Interest and Taxes | $2,626 | $36,078 | $85,396 |
EBITDA | $2,626 | $36,078 | $85,396 |
Interest Expense | $0 | $0 | $0 |
Taxes Incurred | $437 | $9,020 | $21,705 |
Other Income | |||
Interest Income | $0 | $0 | $0 |
Other Income Account Name | $0 | $0 | $0 |
Total Other Income | $0 | $0 | $0 |
Other Expense | |||
Account Name | $0 | $0 | $0 |
Other Expense Account Name | $0 | $0 | $0 |
Total Other Expense | $0 | $0 | $0 |
Net Other Income | $0 | $0 | $0 |
Net Profit | $2,190 | $27,059 | $63,691 |
Net Profit/Sales | 1.18% | 11.49% | 20.98% |
7.2 Important Assumptions
The financial plan depends on important assumptions, some of which are shown in th General Assumptions table as annual assumptions. Section 5.2 includes many of the sales-specific assumptions.
7.3 Break-even Analysis
The following Break-even Analysis shows the break-even point for the business in necessary revenue. Neglecting outsourcing surcharges or other sources of revenue, 102 hours would need to be billed (if partner and associate hours were equal). This amount of consulting service represents 59% of the potential monthly billable hours.

Break-even Analysis | |
Monthly Revenue Break-even | $15,061 |
Assumptions: | |
Average Percent Variable Cost | 39% |
Estimated Monthly Fixed Cost | $9,200 |
7.4 Projected Cash Flow
The annual cash flow is highlighted in the next table. The monthly numbers for 2004 are depicted in the Appendix). The net cash flow is worst (most negative) for month two, February 2004. Cash flow becomes positive in September 2004. The net cash flow for 2004 is negative overall. The cash balance at the end of 2006 is respectable.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $46,257 | $58,880 | $75,880 |
Cash from Receivables | $108,426 | $168,358 | $216,488 |
Subtotal Cash from Operations | $154,682 | $227,237 | $292,368 |
Additional Cash Received | |||
Non Operating (Other) Income | $0 | $0 | $0 |
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $0 | $0 | $0 |
New Other Liabilities (interest-free) | $0 | $0 | $0 |
New Long-term Liabilities | $0 | $0 | $0 |
Sales of Other Current Assets | $0 | $0 | $0 |
Sales of Long-term Assets | $0 | $0 | $0 |
New Investment Received | $0 | $0 | $0 |
Subtotal Cash Received | $154,682 | $227,237 | $292,368 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $96,000 | $105,600 | $116,160 |
Bill Payments | $78,423 | $102,819 | $121,958 |
Subtotal Spent on Operations | $174,423 | $208,419 | $238,118 |
Additional Cash Spent | |||
Non Operating (Other) Expense | $0 | $0 | $0 |
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $0 | $0 | $0 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $0 | $0 | $0 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $174,423 | $208,419 | $238,118 |
Net Cash Flow | ($19,741) | $18,819 | $54,249 |
Cash Balance | $20,259 | $39,078 | $93,327 |
7.5 Projected Balance Sheet
The pro forma balance sheet follows. The net worth of O’Connor & Partners increases steadily from the end of 2004 to 2006 year-end.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $20,259 | $39,078 | $93,327 |
Accounts Receivable | $30,344 | $38,624 | $49,777 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $50,603 | $77,702 | $143,104 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $50,603 | $77,702 | $143,104 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $8,413 | $8,454 | $10,165 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $8,413 | $8,454 | $10,165 |
Long-term Liabilities | $0 | $0 | $0 |
Total Liabilities | $8,413 | $8,454 | $10,165 |
Paid-in Capital | $50,000 | $50,000 | $50,000 |
Retained Earnings | ($10,000) | ($7,810) | $19,248 |
Earnings | $2,190 | $27,059 | $63,691 |
Total Capital | $42,190 | $69,248 | $132,939 |
Total Liabilities and Capital | $50,603 | $77,702 | $143,104 |
Net Worth | $42,190 | $69,248 | $132,939 |
7.6 Business Ratios
Industy ratios for the Process, Physical, Distribution and Logistics Consulting industry, NAICS code 541614, are shown in comparison to the ratios calculated from the financial forecasts of this plan.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 27.29% | 28.87% | 7.23% |
Percent of Total Assets | ||||
Accounts Receivable | 59.96% | 49.71% | 34.78% | 19.36% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 50.02% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 70.95% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 29.05% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 16.63% | 10.88% | 7.10% | 33.87% |
Long-term Liabilities | 0.00% | 0.00% | 0.00% | 15.64% |
Total Liabilities | 16.63% | 10.88% | 7.10% | 49.51% |
Net Worth | 83.37% | 89.12% | 92.90% | 50.49% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 61.09% | 66.88% | 72.15% | 24.27% |
Selling, General & Administrative Expenses | 60.02% | 55.39% | 51.05% | 11.90% |
Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.57% |
Profit Before Interest and Taxes | 1.42% | 15.32% | 28.14% | 0.87% |
Main Ratios | ||||
Current | 6.01 | 9.19 | 14.08 | 1.61 |
Quick | 6.01 | 9.19 | 14.08 | 1.32 |
Total Debt to Total Assets | 16.63% | 10.88% | 7.10% | 56.90% |
Pre-tax Return on Net Worth | 6.22% | 52.10% | 64.24% | 2.84% |
Pre-tax Return on Assets | 5.19% | 46.43% | 59.67% | 6.59% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 1.18% | 11.49% | 20.98% | n.a |
Return on Equity | 5.19% | 39.07% | 47.91% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 4.57 | 4.57 | 4.57 | n.a |
Collection Days | 56 | 71 | 71 | n.a |
Accounts Payable Turnover | 10.32 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 27 | n.a |
Total Asset Turnover | 3.66 | 3.03 | 2.12 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.20 | 0.12 | 0.08 | n.a |
Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $42,190 | $69,248 | $132,939 | n.a |
Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.27 | 0.33 | 0.47 | n.a |
Current Debt/Total Assets | 17% | 11% | 7% | n.a |
Acid Test | 2.41 | 4.62 | 9.18 | n.a |
Sales/Net Worth | 4.39 | 3.40 | 2.28 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |